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Providing coverage of Alaska and northern Canada's oil and gas industry
October 2003

Vol. 8, No. 42 Week of October 19, 2003

Alaska waits for national energy policy bill

Negotiators in final push on gas line tax credits, other hard issues

Larry Persily

Petroleum News Juneau Correspondent

As congressional negotiators struggled through their final hours of work on the long-awaited national energy policy bill, it looked increasingly likely that Alaska might not get its two biggest wishes in the bill — federal tax credits to partially guarantee a minimum wellhead value for North Slope natural gas, and congressional approval for oil and gas drilling in the Arctic National Wildlife Refuge.

Though no version of the draft bill had been released to the public in more than two weeks, Senate Energy and Natural Resources Chairman Pete Domenici’s office confirmed Republican negotiators had tentatively decided not to include the gas pipeline price-support provision.

Alaska’s congressional delegation and Gov. Frank Murkowski, however, had not given up and were continuing to lobby for the tax credit provision as Petroleum News went to press on the morning of Thursday, Oct. 16.

NPR-A royalty relief a plus

It was looking good, however, for royalty relief provisions for development in the National Petroleum Reserve-Alaska and similar provisions for production offshore in federal waters.

Federal tax credits of $3 per barrel to promote production of heavy oil on the North Slope were iffy, as negotiators went into what could be their final day of closed-door work Oct. 16.

“At this point these issues are truly in the laps of the Gods,” said John Katz, director of the state’s Washington, D.C., office.

Negotiators are working under a tight deadline imposed by congressional leaders, Katz said. Senate Majority Leader Bill Frist, R-Tenn., and House Speaker Dennis Hastert, R-Ill., had told House-Senate energy bill conferees to finish their work by Oct. 17, Katz said. The GOP leaders want House and Senate votes on the bill before the end of the month.

Pressure to finish work

The White House also stepped up the pressure on the conference committee members to settle their differences and move the bill. “The leadership is clearly saying it’s time,” Katz said. “The conferees, left to their own devices, might not have been able to produce a bill in this timeframe.”

Though only a few items in number, the list of remaining issues is long on controversy.

Congressional approval to open the coastal plain of ANWR to oil and gas exploration and production is doubtful, Katz said. “ANWR is still alive, but clearly is on life support.”

Domenici, R-N.M., has said he will drop the provision from the bill unless Alaska’s senators can show him they have 60 votes to stop a threatened filibuster of the entire package. Supporters of ANWR do not have the 60 votes, Katz said.

Opening ANWR has been the state’s key congressional issue for years, with the Legislature spending more than $12 million on lobbying efforts since 1991 — more than $7 million of that in the past three years.

Gas project tax credits in trouble

Federal tax incentives to encourage construction of a $20 billion pipeline to feed North Slope gas to the North American distribution grid are among the most debated of the final issues facing congressional conferees. Much of the opposition to the price support provision is coming from Rep. Bill Thomas, R-Calif, chairman of the House Ways and Means Committee, with backing from the White House, Katz said.

Thomas is philosophically opposed to the provision that would use federal tax credits to protect North Slope producers whenever the wellhead value of their gas dropped below $1.35 per thousand cubic feet.

ConocoPhillips and BP have said they need the price protection before they are willing to take the risk of building the project. ExxonMobil, the other major North Slope producer, opposes federal price supports.

“My company, ConocoPhillips, would benefit if a low-price tax credit mechanism were incorporated into law,” stated Archie Dunham, chairman of ConocoPhillips. “However, the public will benefit even more generously as they will have access to an important new natural gas supply.” Dunham made his comment in a report issued by the National Commission on Energy Policy.

Payback compromise not moving

Alaska Sen. Ted Stevens tried to push a payback provision in times of high prices to lessen opposition to the price-support protection, but it did not seem to change many minds among opponents to the tax credits, Katz said. “It was a very worthy effort.”

Senate Finance Chairman Charles Grassley, R-Iowa, was quoted in The Wall Street Journal as saying Alaska may not get all of the tax incentives it wants for the gas project.

There seems to be general agreement that the bill will include provisions granting tax-saving accelerated depreciation and federal loan guarantees for the gas pipeline, along with tax credits for the gas treatment plant on the North Slope and expedited review provisions to protect against permitting delays.

A provision granting a federal tax credit of $3 per barrel for North Slope heavy oil production “is still in play,” Katz said. “It isn’t clear what the ultimate outcome will be.”

The House Ways and Means and Senate Finance committees have been working on all of the energy bill’s tax provisions, and much of the delay in getting a final draft bill is due to the high costs of all the tax credits crammed into the bill.

High costs attract criticism

Estimates of the total cost of energy tax credits in the bill run as high as $20-plus billion, more than double what President George Bush has said he will accept. In addition to opposition from fiscal conservatives, the high cost of underwriting energy programs has drawn attacks from taxpayer groups.

“How can we afford these direct subsidies to these robust industries when we have record deficits?” asked Keith Ashdown of Taxpayers for Common Sense, telling The New York Times the Alaska gas pipeline tax credits are among the most offensive.

The tax credits and federal largesse extend across the country, including an $800 million loan guarantee for a coal gasification plant in Minnesota and a proposed $1 billion in federal support for a nuclear reactor in Idaho.

In addition to the Alaska issues, congressional negotiators are also battling over federal support for corn-based ethanol production, solutions to the nation’s electrical supply and distribution problems, and provisions to protect producers of a gasoline additive from liability.

And Domenici is fighting with some of his GOP colleagues over a provision calling for an inventory of oil and gas resources in the Outer Continental Shelf. Coastal senators, including prominent members from North Carolina and Maine, strongly oppose the provision for fear it would be a first step in ending a coastal drilling ban.






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