Project Update and Deliverables July 1, 2010 Demand for North Slope Gas July 1, 2010 Project Update...

Project Update and DeliverablesJuly 1, 2010

Overview

óProject ReviewóProject Status and

July 1 DeliverablesóCost EstimationóCost of Service

AnalysisóSummary

2July 1, 2010 Project Update

Alaska Stand Alone Gas Pipeline Project

ó Bullet Line Project evaluated in 2008 by ENSTARó Project reinitiated by State and managed by Harry Noah in June

2009ó Project scope adjusted through summer and fall, 2009ó State management changes, January, 2010ó All project efforts reviewed and maintained through April, 2010ó HB369 passes and signed into law, May, 2010ó Alaska Gasline Development Corporation (AGDC) createdó Project management transition begins June, 2010ó Transfer of all management, engineering, and work product

deliverables to AGDC, July 1, 2010

Project Update 3July 1, 2010

July 1 Project Update Take-Home Pointsó New work product builds on earlier efforts

ó Diverse and experienced project team

ó Cost estimates bracket potential pipeline and facilities cost structure

ó ‘Cost block’ data provides versatility for pipeline configuration and cost of service modeling

ó Cost of service modeling suggests cost to consumer sensitive to:

ó All modeling input easily altered to analyze sensitivities for economic modelsó Pipeline configuration/ financing/ costs


ó Market demandó Financingó Local distribution system costs

ó Ultimate cost of projectó Commodity price

Take-Home Point

ó July deliverables provide critical baseline data and tools for continued plan development by the Alaska Gasline Development Corporation Team

July 1, 2010 Project Update 5

Distribution of Reserves


1.5

35 TCF 12

In-State Demand for North Slope Gas


210

70

280

270

0

100

200

300

400

500

Total Natural Gas Demand Net North Slope Gas Demand

MM

cfd

Industrial Sector

Utility Sector

Years 1- 5

Northern Economics /ISER /SAICIn-State Gas Demand Study, 2010

In State Demand :Northern Economics Study

ó Years 1-5 after constructionó Assumes LNG

export at full capacityó No new

resource found in Cook Inlet


From:Northern Economics /ISER /SAICIn-State Gas Demand Study, 2010

Project Review

Current Project Contributorsó State of Alaska – Project oversight and managementó Michael Baker Jr. - Engineering Leadó Energy Project Consultants, LLC - Cost of Service Analysis ó Black and Veatch - Cost of Service Analysisó Price-Gregory – Pipeline Cost Estimationó Ward A. Whitmore & Assoc. and Larkspur Associates - Facility Cost

Estimationó Doyon Emerald – Facility Process Specificationó AES – Environmental Permitting

The project contributors have over 200 years of combined pipeline and arctic experience

Additional project contributors: State of Alaska - Harry Noah , Ken Pohle, and John Reeves; ENSTAR -John Lau; Mike Metz & Associates.

9July 1, 2010 Project Update

Project Review

Scope of Workó Evaluate, utilize, and update original ENSTAR work productó Identify and evaluate alternate resource, pipelines, & routesó Define and scope range of project configurationsó Develop permit and engineering scopeó Develop cost of service economics

Work Products Previously Deliveredó Alternative route analysisó Project descriptionó Right of Way and EIS filings


Project Review

Current Work Productsó GIS database ó Reports and Capital Cost estimates:

ó Cost of Service Estimatesó Permitting update

Project Update

• Facilities • Civil Quantities

• Owner Costs • Pipeline Costs

• Design Basis • Logistics

• Material Sites • Waterway Crossings

• Geohazards • Construction

• Fairbanks Lateral Design • Right of Way

11July 1, 2010

Definition of Work Product

What work product delivers:

ó Project specification necessary to evaluate and optimize project development ó Cost of Service estimates that bracket economics of the

scenariosó Initiation of permitting and right of way processó Engineering effort to develop fast-track pipeline for 2016

gas delivery ó Credible cost estimates and set of decision support tools

for AGDC to evaluate and develop pipeline plan identified in HB369


Definition of Work Product

What work product provides groundwork for:

ó Information to develop plan for single pipeline configurationó An economic comparison with other energy projects in

the Stateó Second phase of permit application to ready for

constructionó The next phase of detailed engineering design and

optimizationó Next phase of detailed cost estimates and financing

scenariosó Recommendations for in-state propane distribution


Project Permitting Accomplishments

ó US Army Corps of Engineers Section 404/10 ó Filed November 16, 2009

ó State of Alaska Title 38 Right-of-Way ó Filed November 25, 2009

ó Bureau of Land Management Grant of Right-of-Way ó Filed November 25, 2009

ó Environmental Field Program Permits ó Filed May – June 2010


Presented by Dr. Keith Meyer, P.E.


Cost Estimate - Introduction


Specifications used to develop Capital Cost Estimates

Cost estimates issued to the economic model

Pipeline Specification• Cost estimate initiated in

December 2009• 24-inch pipe• Construction, materials,

engineering, and owner costs

Facilities Specification• Facilities estimated in

Individual Cost Blocks• Cost Blocks combined for

cases considered

Useful Definitionsó Material balance

ó Changes in gas composition and rate as it passes through processing associated with the pipeline; a way to track Btu's

ó Gas conditioningó Removal of carbon dioxide, hydrogen sulfide, and dehydration

ó NGLó A mixture of propane, butane, and natural gasoline liquids removed from natural gas; includes small amounts of

ethane

ó NGL extractionó A cryogenic process to remove NGL from pipeline gas leaving a utility grade natural gas

ó LPGó Liquefied petroleum gas (propane & butane)

ó NGL fractionationó Separation of NGL into propane, LPG, and natural gasoline

ó CGF residue gasó Natural gas leaving the Prudhoe Bay Central Gas Facility

ó mmcfd – volumetric measurement in million cubic feet per day;ó Dth – Dekatherm is the heating value per unit volumeó 1 Dth = 1 MCF at 1,000 btus per cubic foot

Project UpdateJuly 1, 2010 17

Cost Estimate - Schedule

Project Update

November 2009 July 2010

Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10

Nov 09 - Mar 10Pipeline/Facility Specification

Apr 10 - Jun 10SummariesFeb 10 - Apr 10

Capital Cost Estimates

18July 1, 2010

Pipeline Cost Estimate

ó Engineering Tasksó Civiló Pipelineó Material Sitesó Waterwaysó Logisticsó Construction Planningó Route Geohazard Analysisó Right of Way Acquisition


Pipeline Work Force Construction Requirements

Project Update 20

0

1000

2000

3000

4000

5000

6000

Summer2014

Fall Winter2015

Summer Fall Winter2016

Summer Fall

Work Force Construction Loading

July 1, 2010

No.

of

Empl

oyee

s

Pipeline Cost Summary Table


Pipeline Construction Cost

$ (billion)

Construction - 24-inch Mainline 1.8

Construction - Fairbanks Lateral 0.04

Materials 0.9

Engineering & Permitting 0.3

Communications 0.2

Construction & ROW Support 0.2

Owner's Management Costs 0.4

Total for Pipe and Pipeline Construction Only $3.8

No contingency and no variance

Cost Estimate Scenarios


Scenario/Description Facilities Configuration

1 Base Case Gas Treatment Plant (GTP)on North Slope and Natural Gas Liquids (NGL) extraction at Fairbanks and Cook Inlet

2 Cook Inlet Conditioning GTP & NGL extraction at Cook Inlet

3 Utility Grade Gas Only GTP & NGL facilities on North Slope – utility grade gas

4 Spiked Same as Scenario 1, except additional NGLs are injected into the gas stream for a richer stream

Flowrates(mmcfd)

Scenario 1 Scenario 2 Scenario 3 Scenario 4

Base CaseCook Inlet

ConditioningUtility Grade

Gas Only Spiked

250 X X X X

500 X X X X

750 X X X X

1,000 X X X X

Cost Estimate Cases

ó 16 cases – combination of scenarios and throughput flow-rates


Facility Cost Block Approach

ó Facility cost block is a specific natural gas processing service; refers to individual block in configuration flow diagrams

ó Cost block estimates based on facility specification; no process design or optimization was completed

ó Cost block estimates are tied to specific flows

ó Costs blocks were coupled with an industry standard formula to adjust costs as a function of capacity to allow capital cost estimation for a range of project configurations


Example - CGF Cost Block


Facilities Work Plan

ó Develop initial material balances for 4 Scenarios at 250, 500, 750, and 1000 mmcfd rates

ó Process simulations and process flow diagrams (PFD) for each cost block based on material balances

ó Major equipment specifications at approximately 250 mmcfd based on PFDs

ó Capital cost estimates based on equipment specifications

ó Capital costs parsed by year in which component was placed in service to meet flow schedule


Facilities Cost Summary ( No Pipeline Costs)

Flowrate(mmcfd) Base Case Cook Inlet

ConditioningUtility

Gas OnlySpiked

With NGL

250 $ 2.6 $ 1.9 $ 2.1 $ 3.1

500 $ 4.0 $ 3.2 $ 3.2 $ 4.6

750 $ 5.3 $ 4.1 $ 4.0 $ 6.0

1,000 $ 7.1 $ 5.5 $ 5.3 $ 8.0

$ (billion)

Project Update

ó Numbers from deterministic cost estimateó Includes compressor stations and Cook Inlet NGL handling

July 1, 2010 27

Capital Cost Summary (Facilities plus Pipeline)


Flow Rate(mmcfd) Base Case Cook Inlet

ConditioningUtility

Gas OnlySpiked

with NGL

250 $6.4 $ 5.7 $ 5.9 $ 6.9

500 $7.8 $ 7.0 $ 7.0 $ 8.4

750 $9.1 $ 7.9 $ 7.8 $ 9.8

1,000 $ 10.9 $ 9.3 $ 9.1 $ 11.8

$ (billion)

ó Numbers from deterministic cost estimate; no contingencyó Includes compressor stations and Cook Inlet NGL handlingó Includes 24” main line and 12” Fairbanks lateral pipelinesó Pipeline costs plus facilities costs needed to maintain throughput

Presented by Bill Sparger


ó Cost of Service to the consumer – residential and/or industrial

ó Analyzed using an industry standard commercial model developed by B&V for the State

ó Includes commodity, transmission and distribution components

ó All inputs ranged or scenario based

Project Update

Cost of Service Analysis

July 1, 2010 30


ó Technical Input:

ó All input broken down by GTP, Pipeline, and NGLó Capital costs – 2010$ - no escalation or contingencyó Scheduleó Cash flow curve



ó Technical Input: cont’d

ó Cost escalation/yearó Operations & Maintenance (O & M) cost/year – 2010$ó Maintenance cap ex/year – 2010$ó Fuel and line pack volumesó Quantity and heating value of gas available for end use



ó Commercial Input:

ó Debt/equity ratioó Return on equity ó Cost of permanent debt (interest)ó Interest during construction ó Contract term



ó Commercial Input: cont’d

ó Depreciation lifeó Load factoró Commodity pricingó Distribution/LDC tariff rateó Private vs. Public ownership




Scenario/Description Facilities Configuration

1 Base Case Gas Treatment Plant (GTP)on North Slope and Natural Gas Liquids (NGL) extraction at Fairbanks and Cook Inlet

2 Cook Inlet Conditioning GTP & NGL extraction at Cook Inlet

3 Utility Grade Gas Only GTP & NGL facilities on North Slope – utility grade gas

4 Spiked Same as Scenario 1, except additional NGLs are injected into the gas stream for a richer stream


ó Scenario/Volume matrix

Rf


Case

Scenarios Volume (mmcfd)Inlet to Pipeline Remarks1 2 3 4

a X X X X 250 Base Case

b X X 500 RFS 2 yrs after case a

c X X 750 RFS 3 yrs after case b

d X X 1,000 RFS 3 yrs after case c

e X X X X 250 then 1,000 RFS 3 yrs after case a

RFS = Ready For Service

Cost of Service Analysis – Volume Ramp Up


Scenario 1 Slow Ramp Up Year Cost Increment

250 mmcfd (a) Year 1 $6.1

500 (b) Year 3 $1.3

750 (c) Year 6 $1.3

1000 (d) Year 9 $1.8

Fast Ramp Up250 mmcfd (a) Year 1 $6.1

1,000 (e) Year 4 $4.0

$ (billions)

ó All cases above 340 mmcfd require expansion of market demand

Natural Gas Delivered to Market - Scenario 1


July 1, 2010 38Preliminary Project Cost of Service Presentation

250 mmcf/d Cases

341

259

192212

247

267239

259

0

50

100

150

200

250

300

350

400

Case 1a Case 2a Case 3a Case 4a

000

Dth

Nat Gas to Market

Pipeline Inlet

July 1, 2010 38Project Update

Note: One Dekatherm (Dth) is approximately one Mcf/d to customer

Presented by Mike Elenbaas


óWhat are the projected tariff calculations and sensitivities for the Alaska Stand Alone Gas Pipeline scenarios analyzed?

July 1, 2010 40Project Update


Answering Question Requires Following Assumptions:

ó Technical Assumptionsó Capital Costó Scheduleó Operations & Maintenance (O&M)

ó Commercial Assumptionsó Demandó Assume that entire pipeline throughput is sold to market (e.g.,

a “Full” pipeline)ó Financingó Debt / Equity Splitó Return on Equity (ROE), cost of debtó Escalation rate, Interest during construction


Commercial Assumptions

ó 70% Debt, 30% Equityó 11.31% Return on Equityó 6.76% cost of debt

ó 2017 First Full-In Service Yearó 3% annual escalation for capital cost and O&Mó 20 year contract / 20 year depreciation lifeó Assumes Pipeline Cases are fully subscribed (e.g.,

in-state demand sufficient to keep pipeline full throughout life of contract)

Based on updated AGIA study


ó Gas commodity costs not included in tariffs shown below

250 mmcf/d Cases - Levelized Tariff at Cook Inlet

$13.01

$15.98$15.81 $16.09

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Case 1a Case 2a Case 3a Case 4a

$/Dt

h

Gas CostLDCNGLPipelineGTP

? ? ??

Using these assumptions gives the following tariff results

July 1, 2010 Project Update

Assumes Base Capex, 70/30 D/E, 11.31% ROE, 6.76% cost of debt; 100% load factor

Requires Significant Liquids Market Development

43

Note: One Dekatherm (Dth) is approximately one Mcf/d to customer

Tariff Model Results verses Current Costsfor Existing Market

ó Tariff results for cases not requiring increase in market demand years 1-5ó Comparison with current average costs to consumer in Cook Inlet


Assumes Base Capex, 70/30 D/E, 11.31% ROE, 6.76% cost of debt; 100% load factor Note: One Dekatherm (Dth) is approximately one Mcf/d to customer

250 mmcf/d Cases - Levelized Tariff at Cook Inlet

$16.09$15.81 $15.98

$8.10

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Case 1a Case 2a Case 3a EnstarResidential

$/Dt

h

Future Gas Cost

LDC

Current Gas Cost

NGL

Pipeline

GTP

? ? ?

Current CostsStand Alone Cases

?

Case 1: Cook Inlet Levelized Tariff

$14.71$9.23 $7.55 $7.34 $6.80

$1.11

$1.11$1.11 $1.11 $1.11

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Case 1a(250 mmcf/d)2017 In Svc

Case 1b(500 mmcf/d)2019 In Svc

Case 1c(750 mmcf/d)2022 In Svc

Case 1d(1000 mmcf/d)

2025 In Svc

Case 1e(1000 mmcf/d)

2020 In Svc

$/Dt

h

Gas CostLDCCook Inlet

?

? ? ? ?

Notes:ó Gas commodity

costs notincluded in tariffs

ó Demand Assumed to keep pipeline full for entire 20 year contract (2017 – 2036)

July 1, 2010 Project Update

Sensitivity Cases: Market Expansion Case Tariff Results

Tariffs assume Base Capex, 70/30 D/E, 11.31% ROE, 6.76% cost of debt; 100% load factor

Hypothetical Market Cases

Capacity limitation per AGIA: 500 mmcf/d

45

Sensitivity Cases: Capital Expenditures and Financing


$11.28$14.71 $16.44

$18.80

$1.11

$1.11

$1.11$1.11

$1.11

$6.99

$8.10

$19.90

$17.55$15.81

$12.39

0

5

10

15

20

25

30

Enstar Residential Base Capital100% Debt

Base Capital70/30 Debt /Equity

P50 Capital70/30 Debt /Equity

High (P75) Capital70/30 Debt /Equity

Case

Pric

e ($

/Dth

)

Gas Cost

Existing Enstar System

Cook Inlet Tariff

Current Costs

Case 1a - 250 mmcf/d Costs

?

??

?

Public Private Private Private - EntityBase Case Base Case P50 P75 - Capex100% Debt 70/30 D/E 70/30 D/E 70/30 D/E - Financing

6.05% 11.31% / 6.76% 11.31% / 6.76% 11.31% / 6.76% - ROE / Cost of Debt

Presented by Bob Swenson


July 1 Project Update Summaryó New work product builds on earlier efforts

ó Diverse and experienced project team

ó Cost estimates bracket potential pipeline and facilities cost structure

ó ‘Cost block’ data provides versatility for pipeline configuration and cost of service modeling

ó Cost of service modeling suggests cost to consumer sensitive to:

ó All modeling input easily altered to analyze sensitivities for economic modelsó Pipeline configuration/ financing/ costs


ó Market demandó Financingó Local distribution system costs

ó Ultimate cost of projectó Commodity price

Summary

ó July deliverables provide critical baseline data and tools for continued project plan development by the Alaska GaslineDevelopment Corporation Team


Questions

óWebsite and contact information for questions

ó www.gasline.us.comó Bryan Butcher, Vice President

Alaska Gasline Development [email protected]


July 1, 2010

Project Update and Deliverables July 1, 2010 Demand for North Slope Gas July 1, 2010 Project Update...

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