Parnell — now not time to change gas tax

Governor says Alaska gas pipeline project needs ‘time to bake’; commercial alignment first; state’s next task royalty regulations

Kristen Nelson

Petroleum News

Alaska Gov. Sean Parnell does not want to see legislation in next year’s session to change the state’s tax on natural gas. It’s too soon, the governor told the Anchorage Chamber of Commerce Sept. 14 — commercial alignment between the private parties is needed first.

And that, he said, will take time.

The governor said he practiced law in Alaska for 14 of the last 22 years.

“I’m a commercial attorney by trade,” he said.

“And one thing I know about commercial ventures, particularly the big worthwhile ones: They take time to bake.”

Big projects take time as parties analyze project viability; they negotiate; they hit roadblocks that they pick their way through and around; they spend money to study the project and find new approaches; and they tend to pick up more partners along the way.

If it goes well, all of that work leads to a decision to sanction the project.

“For companies, commercializing North Slope gas is in part about reaching the project sanctioning decision,” he said.

Progress made

The state put real skin in the game with the Alaska Gasline Inducement Act, and will fund up to $500 million in project costs in exchange for a project that serves the state’s interests.

TransCanada put skin in the game by committing to move the project on timelines and terms agreeable to the state, Parnell said.

Then ExxonMobil became TransCanada’s partner in the project and TransCanada and Exxon are “spending real money in this effort,” he said, and have said they will have cost estimates during the first quarter of next year.

BP and ConocoPhillips are also spending real money on a field season and follow-up analysis for their Denali pipeline project, the governor said.

As part of AGIA the state pledged royalty inducements to companies participating in the first open season.

The state’s next milestone is to have regulations in place for those royalty inducements before the first open season next summer.

“Those royalty inducement regulations will enable parties that participate in the summer 2010 open season to gain valuable changes to their leases for participating” in that open season, Parnell said.

Patience pays off

“Those who call the state to rush now into negotiations with producers over gas taxes are naïve,” he said.

Negotiating now with four companies in two projects would add to the state’s cost in the project, “unduly complicate an already complex playing field and delay the project.”

“Those legislators who think they might file tax legislation at the start of session, without any commercial alignment of the private parties — that would add more uncertainty and complexity to the equation and diminish our chances for a gas pipeline.”

The governor repeated a statement he has made before, saying: “The biggest obstacle facing the Alaska gas line project is the lack of commercial alignment between private parties.”

“Alaska gas line project members TransCanada and Exxon should be in private negotiations with Conoco and BP; but we will not see that happen in the public arena,” Parnell said.

As for the state negotiating now over taxes, he said it tried the tactic of negotiating with companies individually in 2004 and 2005 and the tactic failed.

He also said that information that will become available to the state as a result of the 2010 open season will “be valuable to the state in assessing what if any changes are needed in the state’s fiscal system.”

Parnell said the open season is a milestone in the process — not a project-sanctioning decision.

The companies don’t commit billions of dollars at open season to build the line; that’s a decision that comes later, after a certificate for the line is obtained from the Federal Energy Regulatory Commission.

Those milestones will occur, Parnell said, “before a board of one of these major companies is likely to sanction an expenditure of its capital to put pipe in the ground.”

Resource roads

“About $3 million a mile,” the governor responded, so for a 75-mile road, $215 million to $220 million.

Parnell said the road is a real option and would open up a lot of resources, both to companies and to Alaskans.

It will take cooperation between the administration and the Legislature to make that happen, he said.

Parnell said the rub is it will cost money and he is working to restrain the growth of government spending.

But roads are capital investments, the governor said, and cited the Transcontinental Railroad in the Lower 48 as a project that required huge investment, but opened up economies all across the central and western United States.

“Roads and infrastructure projects do lead to economic activity … and jobs for Alaskans,” he said.

Parnell said he will work on the road to Umiat: “That’s something that’s a high priority for us.”

The administration is also looking at a road to Nome to open up the state’s mineral resources, he said.

His administration is “looking at a number of different options … options that can increase economic activity.”

—Kristen Nelson