Tax incentives proposed for gas storage
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Alaska Sen. French unveils bill offering tax credits, property tax relief to encourage Cook Inlet facilities for holding natural gas
Wesley Loy For Petroleum News
Alaska state Sen. Hollis French plans to introduce legislation to provide tax incentives for development of Cook Inlet natural gas storage capacity.
French, an Anchorage Democrat who sits on the Senate Resources Committee, said he’s concerned about potential winter gas supply shortages for homes and businesses in Southcentral Alaska.
“Storage makes sense. It’s like cutting an extra cord of wood in the summer to burn in the winter,” French said in a Nov. 2 press release.
A problem with storage, however, is the considerable expense.
“According to studies and industry sources, development of an adequate storage system could cost companies $100-$200 million,” the press release said.
French’s five-page draft bill defines a Cook Inlet gas storage facility as a tank, a depleted reservoir, an injection well for gas storage, “or other structure in the state for the storage of gas that is produced from the Cook Inlet sedimentary basin and designated for sale and delivery in the state.”
The bill has two major elements.
First, it offers a state corporate income tax credit. A company may apply as a credit against its tax liability “20 percent of the taxpayer’s qualified capital investment in a Cook Inlet gas storage facility,” the bill says.
It defines a qualified capital investment as a cash expenditure or contract struck between Dec. 31 of this year and Jan. 1, 2013, for development of a storage facility.
Another qualified capital investment is the cost of “cushion gas” necessary to pressurize the storage facility. This permanent inventory of cushion gas is a major initial cost factor for storage developers.
The credit could not exceed 50 percent of a company’s total tax liability each year, the bill says.
The bill’s second major element would exempt gas storage facilities and equipment from the state oil and gas property tax.
Storage already happening
While Cook Inlet gas fields are approaching depletion, the most pressing issue right now is deliverability — getting enough gas into the distribution grid during the coldest winter days to meet peak demand. Regulators, energy companies and elected officials have talked increasingly of the possible need for consumer conservation measures or even rolling power blackouts as early as this winter.
French, a former oil industry worker and Senate bipartisan majority member who’s running against Republican Gov. Sean Parnell, has touted storage as a way to squirrel away summer gas production for use during winter.
The storage incentives are akin to state perks now in place to encourage exploratory drilling, French said.
But some storage efforts already are progressing without the benefit of the tax incentives he is proposing.
Chevron and Marathon have established three storage facilities in depleted reservoirs at the Swanson River, Pretty Creek and Kenai fields.
Enstar Natural Gas Co., the major gas utility for Southcentral Alaska, is working with Houston-based ANR Pipeline Co., a TransCanada Corp. subsidiary, on development of a new storage facility.
Aurora Gas also wants to develop a gas storage facility at its Nicolai Creek gas field.
French’s bill will be considered once the Legislature opens its new session on Jan. 19. Two types of tax incentives The bill has two major elements.
First, it offers a state corporate income tax credit. A company may apply as a credit against its tax liability “20 percent of the taxpayer’s qualified capital investment in a Cook Inlet gas storage facility,” the bill says.
It defines a qualified capital investment as a cash expenditure or contract struck between Dec. 31 of this year and Jan. 1, 2013, for development of a storage facility.
Another qualified capital investment is the cost of “cushion gas” necessary to pressurize the storage facility. This permanent inventory of cushion gas is a major initial cost factor for storage developers.
The credit could not exceed 50 percent of a company’s total tax liability each year, the bill says.
The bill’s second major element would exempt gas storage facilities and equipment from the state oil and gas property tax.
Storage already happening While Cook Inlet gas fields are approaching depletion, the most pressing issue right now is deliverability — getting enough gas into the distribution grid during the coldest winter days to meet peak demand. Regulators, energy companies and elected officials have talked increasingly of the possible need for consumer conservation measures or even rolling power blackouts as early as this winter.
French, a former oil industry worker and Senate bipartisan majority member who’s running against Republican Gov. Sean Parnell, has touted storage as a way to squirrel away summer gas production for use during winter.
The storage incentives are akin to state perks now in place to encourage exploratory drilling, French said.
But some storage efforts already are progressing without the benefit of the tax incentives he is proposing.
Chevron and Marathon have established three storage facilities in depleted reservoirs at the Swanson River, Pretty Creek and Kenai fields.
Enstar Natural Gas Co., the major gas utility for Southcentral Alaska, is working with Houston-based ANR Pipeline Co., a TransCanada Corp. subsidiary, on development of a new storage facility.
Aurora Gas also wants to develop a gas storage facility at its Nicolai Creek gas field.
French’s bill will be considered once the Legislature opens its new session on Jan. 19.
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