During the last days of the legislative session, Alaska lawmakers passed one bill intended to revive the state’s declining oil production by cutting taxes, and another to advance development of an in-state pipeline that would commercialize North Slope natural gas reserves for use by Alaskans.
Lawmakers passed HB 4, which is aimed at promoting development of an in-state gas pipeline. Similar legislation died last year during special session. It puts development of an in-state gasline in the hands of the Alaska Gasline Development Corp. (AGDC). The legislation’s sponsors — Rep. Mike Hawker (R-Anchorage) and Rep. Mike Chenault (R-Kenai) — said it “…provides AGDC the authority and resources to develop, finance and operate a 500 MMcf/d gas pipeline from the North Slope, serving Fairbanks and Southcentral, at the lowest possible cost, without delay. While pursuing this project, AGDC is structured to be responsive if alternatives materialize that provide greater benefit to Alaskans, including potential partnership with industry on a large-diameter export pipeline.”
The legislation is intended to advance project development to an open season (to be held possibly during the middle of next year) during which market interest in piping gas from the North Slope to the southern portion of the state would be tested. Cost of the project is estimated at about $7.7 billion. Its construction is not guaranteed by the legislation.
Opponents of HB 4 said it did not offer enough oversight of AGDC and pipeline development activities, while others argued that a pipeline and liquefied natural gas (LNG) export project being pursued by partners BP plc, ExxonMobil Corp., ConocoPhillips and TransCanada Corp. is a better option. The trio of producers and their pipeline partner are backing a “megaproject” that could cost $45-65 billion or more (see NGI, Oct. 8). Backers of an in-state line argue that Alaskans in the southern part of the state can’t wait for such a large project to be developed because they need gas now.
The city of Valdez was a vocal opponent of HB 4, arguing that the state would be better served by a larger project. Valdez backed a larger-volume in-state pipeline with an LNG export facility that would be built by the state, not TransCanada and the producers.
However, HB 4 had the support of Gov. Sean Parnell. “Alaskans have had to wait too long to get their gas,” he said. “I commend Representative Hawker and Speaker Chenault for spearheading this legislation to get Alaska’s gas to Alaskans first, then to markets beyond.”
On April 14, the last scheduled day of the session, lawmakers passed an oil tax cut (SB 21) for producers, whose proponents said would help refill the Trans Alaska Pipeline System but whose detractors said would cost the state budget dearly. One analysis said the plan could cost the state up to $4.7 billion through 2019. But critics, who found information used in revenue projections to be lacking, said the cost to the state could go higher.
Parnell proposed the legislation and praised its passage. “Alaska’s below-ground resources are world class,” he said. “Above-ground, we have now set the stage for a future of growth and opportunity for Alaskans. We are signaling to the world that Alaska is back, ready to compete, and ready to supply more energy once again.”
Kara Moriarty, executive director of the Alaska Oil and Gas Association, said the most important thing the legislation does is eliminate the “high progressivity” of taxes on oil production. The legislation simplifies the state’s tax system by replacing progressive rates with a 35% base rate and a per-barrel tax credit tied to oil production. The old tax scheme levied a 25% base rate that increased by 0.4% for every $1 that net oil prices were above $30 at the wellhead. While that arrangement drove revenue to the state, it meant oil taxes skyrocketed along with oil prices.
“The bill creates a new framework, and although SB 21 as passed today is not as attractive as previous versions of the bill, it creates a tax system that is more competitive,” Moriarty said. “We appreciate the legislature and the administration for recognizing that ACES [Alaska’s Clear and Equitable Share tax scheme] is broken, which has made Alaska uncompetitive. They turned analysis into action, and no doubt history will look favorably on their drive to get Alaska back in contention for new investment.”
The new scheme keeps the state off the hook for paying $1 billion or more in tax credits when oil prices are low and keeps Alaska competitive for oil production when prices are high, Parnell said. It “…meets our four guiding principles: this legislation is fair to Alaskans, it encourages new production, it is simple and restores balance to the system, and the tax structure is competitive and durable. Alaska’s oil comeback starts now.”
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